Why has luxury spending increased during the pandemic?
Forget the early weight gain known as ‘Quarantine 15’, or the surge in adoptions of floppy-eared pandemic puppies – the new COVID-19 trend is about designer duds and flashy cars, and it comes at a steep price. .
Call it revenge spending, or call it a case of yolo (an anagram for “you only live once”), but luxury goods are seeing hit sales despite supply chain pitfalls, the surging inflation and global uncertainty due to the pandemic.
Last week, the jeweler cartier recorded a 30% increase in sales in the last three months of 2021 compared to the last quarter of 2020, while the Italian fashion house Prada gained 8% more this year than pre-pandemic sales in 2019. Louis Vuitton, Dior, and BMW all came out reports earlier than expected in mid-January, posting sales that far exceeded those of 2020, and even surpassed pre-pandemic sales.
So why are consumers spending a lot of money on ultra-luxury products?
“At the start of the pandemic, the government did a great job of supporting disposable income, but even without lockdown, many people were avoiding using face-to-face services. So spending on restaurants, entertainment and travel has dropped like a rock,” says William Dickens, professor of economics and public policy at Northeastern.
“With disposable income holding up, that leaves people with a lot of money to spend on things like manufactured goods. Especially things that could be bought without going out, stuff on the internet,” Dickens says.
Ongoing confusion caused by the delta and omicron COVID-19 strains has kept travel and restaurant spending on the back burner throughout 2021, Dickens says.
Rolls-Royce, a cushy statement vehicle long associated with affluent drivers in their golden years, has also capitalized on the trend. The company announced record sales in 2021 across the world, selling more luxury rides last year than in any other year in the company’s 117-year history.
Rolls Royce CEO Torsten Muller-Otvos credited COVID-19 for the sales boost during an interview with The Financial Times.
“A lot of people have seen people in their community die from Covid, it makes them think that life can be short, and it’s better to live now than to put it off until a later date,” says Müller-Otvös. “It helped Roll-Royce.”
Christie Chung, a psychology professor at Mills College, says the pandemic has changed the way many people spend money.
“When you think about the pandemic, what you see is people start to ask themselves, ‘What makes sense to me? What can I use my time for if I I really have a limited time to live? We started to see people doing things a little different from their normal routine. They started to wonder if they should use their money for something they’ve always wanted,” explains Chung.
Rather than spending for revenge, a relatively new term describing a buying spree after two years of pandemic savings and failed experiences, Chung says some of the luxury buying could be about a new focus on meaningful items.
“People are starting to realize that they want to put their resources, which are usually limited to basic things, into things that make more sense to them,” says Chung.
The sudden surge in spending on designer yarns and high-profile automobiles offers another glimpse into the pandemic, which has exacerbated the already deep divide between the ultra-rich and those who earn a living, according to to a January 17 report by Oxfam International.
“Essentially, these are the trends we see. The wealthiest billionaires have increased their wealth by huge amounts, and it’s a far cry from what the average consumer lives in terms of income,” says Iakov Bart, Professor of Marketing and Affiliate Professor at the Global Resilience Institute to North-east.
The world’s 10 richest men have earned around $1.2 billion a day since the pandemic began, Oxfam reported. Meanwhile, more than 160 million people have been pushed into poverty over the past two years, according to the report.
“That’s where we see most of the luxury consumption,” Bart says.
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